In its history, the finance industry has arguably experienced more innovation than any other sector. Financial technology has brought many novelties to today’s society, continuously changing the way we handle monetary operations. FinTech startups introduce even newer alternatives, challenging traditional banks to step up their innovation effort while offering a chance to collaborate. As 60% of traditional firms are seeking partnerships with FinTech startups on a global level, it is not surprising that the cash flow in the industry is more than vivid: In 2016, a total amount of 22 billion Euro was invested in FinTechs worldwide.

Cutting-edge startups in the FinTech sector are already experiencing a hype due to their disruptive technologies. At StartUs Insights, we focus on startup and innovation scouting to identify the rising stars and innovation areas in the industry early on.

Through a large-scale analysis of 14.000 FinTech startups, we recognized several leading young companies and innovation areas that will impact the industry in the near future. To shed light on the application and potential of the most disruptive of these emerging technologies, we decided to outline the most dominant ones we encountered.

Mobile

Described as the “number one opportunity” in FinTech, mobile has yet to make its big impact as the tech-savvy Generation X along with Millennials are the most eager to embrace this innovation area. With only 44% of the global population owning a smartphone in 2017 there is space to grow, and mobile transfers will be driven by this factor.

As payments are the single biggest point of contact between financial organizations and consumers, this is the “engine room that will power the take-up and repeated use of financial services innovations”.

Monese makes use of this factor by significantly simplifying the process of opening a bank account in the UK – even without a UK residency or credit history (“instant account for mobile people”). Additionally, the startup enables users to send money abroad, receive salary transfers, and pay bills among other functionalities – all by smartphone.

Mobile

Will this innovation area disrupt the industry?

Blockchain

Due to the many applications blockchain offers, this technology is steadily becoming more influential in the financial services industry. Security from fraud, low cost of operation, decentralized and transparent operations are only a few of the advantages financial institutions can benefit from.

The conditions on which blockchain thrives are a shared repository of information, multiple writers, minimal trust, the presence of intermediaries and interdependencies between transactions – all of which the disruptive technology is the answer for. Though not all aspects of the financial system will encounter the same impact by blockchain in the nearest future, payment solutions are widely believed to be implemented the fastest.

Having raised roughly 12 million Euro to date, Abra takes full advantage of the blockchain technology to merge money transfer and payments by a digital cash wallet that works worldwide. No bank or other traditional organization is participating in managing, storing, sending, or accepting funds. The startup seeks to enable the purchase and storage of digital currency like Bitcoin directly on the smartphone, getting around the issue of lack of local exchanges.

Blockchain

Will this innovation area disrupt the industry?

Big Data

As big data runs like a golden thread through many industries, the democratization of data is expected to continue its momentum. Especially important in the financial industry, this innovation area is at the core of the performance of financial markets while also bringing the potential for disruption to lending and credit scoring.

As a matter of fact, big data extracted from social media is already catching the attention of new lenders when assessing credit worthiness on account of data shared by individuals through various networks.

One of the startups already implementing this approach is Cignify. Their solution, Maxymus, makes use of big data to meet the needs of millions of people owning a smartphone but having no access to financial services. Through analyzing data solely from smartphones, they are able to create valid credit risk scores.

Big Data

Will this innovation area disrupt the industry?

Artificial Intelligence (AI)

FinTech startups are already making use of Artificial Intelligence to improve their solutions and the decisions made with them. One novelty that is intensively being worked on is chatbots. Carrying out financial operations and tracking account activity are just two of the application examples.

Simultaneously to the advancements in chatbots, robo advisers, and other automated advisory solutions are anticipated to become a significant trend as the cost associated with traditional advisors does not make sense for the majority of financial clients.

French startup Cognitiv+ has built an Artificial Intelligence Engine capable of identifying topics of interest in unstructured text as well as relationships between topics, companies and more. For financial institutions, AI can be used to gain quick and thorough insights into their legal documents by analyzing data from legislation and contracts.

Artificial Intelligence (AI)

Will this innovation area disrupt the industry?

Regulatory Technology (RegTech)

Regulatory technology is set to abolish compliance as an entry barrier by designing tools and services aimed at automating compliance tasks, reducing risk fraud, or perfecting authentication and identity management.

With RegTech solutions emerging, banks have the opportunity to decrease compliance costs by making use of algorithmic platforms and predictive analytics. More than that, they will also benefit from increased efficiency brought by RegTech startups.

The core activity of London-based startup Percentile revolves around the needs of risk officers working in capital markets. With the help of “automation, good data management and removal of the black box and spreadsheet-driven risk processes”, Percentile achieves greater transparency, consistency for internal and regulatory needs.

Regulatory Technology (RegTech)

Will this innovation area disrupt the industry?

Open Banking Application Program Interfaces (APIs)

Today’s banking as a service (BaaS), allows FinTech startups for partnering by using a bank’s license while conforming to regulations. They can offer services in a way that is easy to integrate for banks to pass them on to their customers.

Banking as a Platform (BaaP) is one application program interface model that enables banks to retain their customers and simultaneously provide the best financial products. In the near future, more banks will open their application program interfaces, establishing FinTech startups as important partners.

Swedish iZettle counts as one of the front-runners enabling payment via smartphone, tablet, and the web. The functionalities of this startup’s solution are available to developers, also allowing them to integrate it with their own, thus creating new apps and services.

Open Banking Application Program Interfaces (APIs)

Will this innovation area disrupt the industry?

Biometrics

With the number of distributed smartphones still growing, the number of biometrical data collected rises as well. For organizations making use of the Know Your Customer (KYC) approach, biometrics help to better identify users.

Ranging from ID and facial recognition to voice and signature analysis, biometrics are used for security purposes in order to reduce and prevent fraud in the age of contactless transactions. For users, the big advantage of biometrics is the enhanced user experience as remembering passwords is no longer required.

By working on predicting a user’s identity by their typing pattern, Romanian startup TypingDNA takes the application of biometrics in FinTech further. Their ambition is to use biometric typing, also known as keystroke dynamics, to protect ePayments, SaaS, apps, and devices. Developers can secure an application simply by typing biometrics through their application program interface (API).

Biometrics

Will this innovation area disrupt the industry?

The FinTech industry is currently experiencing a massive hype. The startups working in the sector develop disruptive technologies that challenge existing financial institutions on one hand but bring an immense opportunity for innovation on the other hand.

Many leading financial organizations partner with startups to co-develop and gain competitive advantage. The innovation areas outlined in this breakdown are just a few of the key digital drivers we identified, others include alternative lending, payment, personal finance, wealth management, and cloud computing.

As customer requirements are changing and these emerging technologies grow further, challenging existing structures and transforming the entire industry, companies that act proactively will emerge as industry leaders.